“Make sufficient provisions for future losses, but do not anticipate future profits.” This statement is in accordance to the concept of :
Conservatism
The convention of conservatism (prudence) says: anticipate no profit, but provide for all possible losses. Creating a provision for doubtful debts and valuing stock at cost or market price, whichever is lower, are classic applications.
The matching concept requires expenses of a period to be set against the revenues of the same period; it deals with timing, not with caution about future losses.
The objectivity concept requires transactions to be recorded on the basis of verifiable evidence such as invoices and vouchers. The materiality concept says that only items significant enough to influence users' decisions need separate disclosure.
The quoted statement is therefore the rule of conservatism.
Hence, Conservatism.
Similar Questions
Which of the following statements are correct ?
(a) Analysis and interpretation of financial statements, is a function of accounting.
(b) Profit and Loss account is prepared for ascertaining financial position of a firm.
(c) Goodwill is a wasting asset.
(d) Balance Sheet is prepared for ascertaining financial position of a firm.
Select the correct answer using the codes given below :
Codes :
Important Questions from Basic accounting principles
The policy ‘anticipate no profit and provide for all possible losses’ arises due to
“Advance received from a supplier is not taken as income or sales.” This comment is based on
Revenue from sale of goods ordinarily is reported as a part of the earning in the period
The generally acceptable accounting principles (GAAP) fulfill the conditions of
(i) Relevance
(ii) Objectivity
(iii) Feasibility
A firm purchases a piece of land after making full payment to the seller. However, the legal formalities are yet to be completed. According to which principle does the firm record the transaction in its books of accounts though the legal formalities are NOT completed?
